21

Regulation of Advertising and Promotion

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Advertising Regulation

Advertising is regulated through:

 Self Regulation

 Federal Regulation

 State Regulation
Self-Regulation of Advertising

Voluntary self regulation by the advertising industry to

maintain consumer trust and confidence and limit
government interference

Self-regulation is done by:

Advertisers and Agencies
Trade Associations
Businesses - BBB
 National Advertising Review Board
Media
The NAD is an important self-regulatory body
 Sources of NAD Cases (2001)

Competitor Challenges 66%

NAD Monitoring 15%

Local BBB Challenges 5%

Consumer Challenges 14%

0 20 40 60 80
 Decisions on NAD Cases (2001)

Modified/Discontinued 60%

Substantiated 15%

Referred to Government 7%

0 25 50 75 100
 TV Network Guidelines for Children’s
Advertising

Must not over glamorize product

No exhortative language, such as “Ask Mom to buy
No realistic war settings
Generally no celebrity endorsements
Can’t use “only” or “just” in regard to price
Show only two toys per child or maximum of six per commercial
Yes
5-sec. “island” showing product against plain background at end
Animation restricted to one-third of a commercial
Generally no comparative or superiority claims
No costumes or props not available with the toy
No child or toy can appear in animated segments
Three-second establishing shot of toy in relation to child
No shots under one second in length
Must show distance a toy can travel before stopping on its own
 4As Policy on Comparative Ads

1. The intent and connotation of the ad should be to

inform and never to discredit or unfairly attack competitor,
competing products, or services.
2. When a competitive product is named, it should be one
that exists in the marketplace as significant competition.
3. The competition should be fairly and properly identified but
never in a manner or tone of voice that degrades the
competitive product or service.
4. The advertising should compare related or similar
properties or ingredients of the product, dimension to
dimension, feature to feature.
5. The identification should be for honest comparison
purposes and not simply to upgrade by association.
 4As Policy on Comparative Ads
6. If a competitive test is conducted, it should be done by an
objective testing source, preferably an independent one, so that
there will be no doubt as to the veracity of the test.
7. In all cases the test should be supportive of all claims made
in the advertising that are based on the test.
8. The advertising should never use partial results or
stress insignificant differences to cause the consumer to draw
an improper conclusion.
9. The property being compared should be significant in terms
of value or usefulness of the product to the consumer.
10. Comparatives delivered through the use of testimonials
should not imply that the testimonial is more than one
individuals thought unless that individual represents a sample of
the majority viewpoint.
 Appraising Self-regulation of advertising

 Advertisers, agencies and the media

view self-regulation as an effective
mechanism and preferable to
government intervention
 Concerns over self-regulation
 Time needed to resolve complaints
 Budgeting and staffing limitations
 Lack of power or authority
 Self-serving to advertisers and media
Questioning the effectiveness of media self-
regulation of liquor advertising
Federal Regulation of Advertising

The First Amendment

 Freedom of speech or expression
 Commercial speech protected

Federal Trade Commission Act (1914)

 Created the FTC to help enforce antitrust laws

Wheeler-Lea Amendment of 1938

 Amended FTC Act to make unfair or deceptive
practices unlawful
Concept of Unfairness

Basis for determining unfairness

is that a trade practice:

1. Causes substantial physical or

economic injury to consumers
2. Could not be reasonably avoided by
consumers
3. Must not be outweighed by
countervailing benefits to consumers
or competition
 Definition of deceptive advertising by the FTC:
“The commission will find deception if there is a
misrepresentation, omission, or practice that is likely to
mislead the consumer acting reasonably in the
circumstances to the consumer’s detriment.”

Three key elements of deception:

 Likelihood of misleading consumer
 Perspective of reasonable consumer
 Materiality – information will influence
consumer choice
 Puffery

Advertising or other sales presentations which

praise the item to be sold with subjective opinions,
superlatives, or exaggerations, vaguely and
generally, stating no specific facts

Examples of puffery:
Bayer – “The wonder drug that works wonders”
BMW – “The ultimate driving machine”
Nestle – “The very best chocolate”
Snapple – “Made from the best stuff on earth”
FTC Programs Addressing Deceptive
Advertising

Affirmative disclosure
 Requires advertisers to include information in
their ads so consumers will be aware of all
consequences, conditions, and limitations
Advertising substantiation
 Advertisers provide supporting documentation
for their claims as proof the claims are truthful
Cease and desist orders
 Stop the claim until resolved with FTC
Corrective advertising
 Run additional advertising designed to remedy
the deception contained in previous ads
FTC Complaint Procedure
Early Stage

Consumer
Consumer Competitor
Competitor FTC
FTC Staff
Staff

Staff
Staff Dismissed
Dismissed
Investigations
Investigations

Proposed
Proposed complaint
complaint
and
and consent
consent order
order
written
written

Reviewed
Reviewed by
by Dismissed
Dismissed
commissioners
commissioners

Advertiser
Advertiser or
or Advertiser
Advertiser agrees
agrees Case
Case resolved
resolved
commission
commission or
or negotiates
negotiates
rejects
rejects order
order
FTC Complaint Procedure
Late Stage

Advertis
Advertiserer or
or
commiss
commissionion
rejec
rejects
ts order
order

Hearing
Hearing before
before
Administrative
Administrative Law
Law
Judge (ALJ)
Judge (ALJ)

IfIfssubstantial
ubstantialevidenc
ev idencee of
of Dis
Dismiss
missed
ed
violation,
violation, cease and desis
cease and des istt
order
order written
written by
by ALJ
ALJ

Advertis
Adv ertiser
er and
and Advertis
Advertiser
er or
or
FTC
FTC agree
agree FTC
FTC apeal
apeal

Cas
Casee resolved
resolved Hearing
Hearing before
before Dis
Dismiss
missed
ed
commiss
commissioners
ioners

Appeals
Appeals
court
court
Other Federal Agencies That Regulate
Advertising and Promotion

Federal Communications Commission

– Jurisdiction over broadcast communications; radio,
television, telephone, and telegraph industries
Food and Drug Administration
– Authority over labeling, packaging, branding,
ingredient listing, and advertising of packaged food
and drug products
U.S. Postal Service
– Control over advertising that uses mail and ads that
involve lotteries, obscenity, or fraud
Bureau of Alcohol, Tobacco & Firearms
– Enforces laws, develops regulations, and responsible
for tax collection for the liquor industry
The Lanham Act

The Lanham Act prohibits any false description or

representation including words or other symbols tending
falsely to describe or represent the same

Companies/ brands that have been

involved in Lanham Act cases include:

• Alpo and Ralston Purina dog food

• Gillette and Wilkinson razor blades
• Prego and Ragu spaghetti sauce
• Duracell and Energizer batteries
Elements required to win a false advertising
lawsuit under the Lanham Act

1. False statements have been made about advertiser’s

product or your product
2. The ads actually deceived or had the tendency to
deceive a substantial segment of the audience
3. The deception was “material” or meaningful and is likely
to influence purchasing decisions
4. The falsely advertised products or services are sold in
interstate commerce
5. You have been or likely will be injured as a result of the
false statements, either by loss of sales or loss of
goodwill
State Regulation of Advertising

 In addition to federal rules and regulations,

advertisers must concern themselves with
state and local laws and regulations

 The National Association of Attorneys

General (NAAG) has been involved with:
 Airfare advertising
 Car rental price advertising
 Nutrition and health claims advertising
 Regulation of other sales promotion

• Contests and sweepstakes

– Cannot be classified as a lottery
– Cannot be required to give up something of value to
participate (consideration)
• Premiums
– Cannot misrepresent their value
– Must take care with special audiences (kids)
• Trade Allowances
– Must be available on proportionally equal terms
 Regulation of Direct Marketing

 FTC and US Postal Service police direct-

response advertising closely
 Telemarketing faces increased regulation
including the:
 Telephone Consumer Protection Act of 1991
 Pay-per-call rule
 Development of “do-not-call” registry by FTC
 Self-regulation occurs through various industry
groups
Regulation of marketing on the Internet

Restrictions have been proposed with

regard to privacy including:
 Banning unsolicited email,
 Disclosing marketers identity,
 Giving consumers the right to bar
marketers from selling or sharing
personal information
 Children’s Online Privacy and Protection
Act (COPPA) – places restrictions on
collecting information from children over
the internet